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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Pawan Singh (JM)
O R D E R Per B.R. Baskaran (AM) :-
The assessee has filed this appeal challenging the order dated 03-11- 2017 passed by Ld Pr. CIT u/s 263 of the Act for assessment year 2013-14. The assessee is questioning the revision power exercised by Ld Pr. CIT on certain issues.
The assessee is engaged in investment and financing business. The assessment for the year under consideration was completed by the AO u/s 143(3) of the Act on 31.3.2016. Subsequently, the Ld Pr. CIT examined the record and took the view that the order passed by AO is erroneous and prejudicial to the interests of revenue. Hence he issued notice u/s 263 of the Act on five issues. The assessee contended before Ld Pr. CIT that the order of AO does not require revision. The Ld Pr. CIT was convinced with the contentions of the assessee in respect of one issue and accordingly directed the AO to examine other four issues. The assessee is challenging the revision order so passed by Ld Pr. CIT.
2 M/s. Tutor Investment & Finance Pvt. Limited
At the time of hearing, the Ld A.R confined himself on the following issues only:- (a) Addition to be made u/s 56(2)(viib) of the Act in respect of share subscription received by the assessee.
(b) Disallowance of Rs.116.64 lakhs relating to derivative transactions by invoking provisions of Explanation to sec. 73 of the Act.
(c) Disallowance of interest charged on TDS deduction.
The first issue relates to the addition proposed by Ld Pr. CIT u/s 56(2)(viib) of the Act. The Ld Pr. CIT noticed that the assessee has issued 10 lakh shares @ Rs.200/- per share. However, the value of shares as per valuation certificate was only Rs.186/- per share. Accordingly the Ld Pr. CIT took the view that the excess share receipts of Rs.1.40 crores (Rs.14/- x 10 lakh shares) is liable to be taxed as income of the assessee u/s 56(2)(viib) of the Act.
The assessee submitted that the AO has called for details of valuation of shares during the course of assessment proceedings and they were furnished to him. Accordingly it was contended that the AO has applied his mind on this issue. It was further submitted that part of share application money was received in the immediately preceding year. Since the provisions of sec. 56(2)(viib) was introduced w.e.f. 2013-14, it was contended that the same should not be applied to the money received in the earlier year. It was further submitted that the assessee has issued shares in the year relevant to AY 2009- 10 at a premium of Rs.190/- per share and the same was accepted by the AO in that year.
The Ld Pr. CIT was not convinced with the explanations of the assessee. He held that the provisions of sec. 56(2)(viib) are attracted when the shares are issued and since the shares were issued during the year under consideration, the said section shall apply to the assessee. He further held that the AO has not applied his mind on this issue though the relevant details were furnished to him by the assessee, which showed clearly that the share issue price of 3 M/s. Tutor Investment & Finance Pvt. Limited Rs.200/- was in excess of the valuation rate of Rs. 186/-. Accordingly he directed the AO to pass fresh assessment order on this issue.
Before us Ld A.R reiterated the contentions that were made before Ld Pr. CIT. The Ld D.R, on the contrary, submitted that the AO has not applied his mind in accordance with the law on this issue.
Having heard rival contentions on this issue, we find that there is merit in the contentions of Ld D.R. There is no dispute with regard to the fact that the assessee has issued shares at Rs.200/- per share, while the value of shares was Rs.186/- per share as per the valuation certificate. Since the shares were issued during the year under consideration, we are of the view that the Ld Pr. CIT was right in holding that the provisions of sec. 56(2)(viib) shall be attracted. Though the relevant details were furnished before the AO, yet we notice that the assessing officer has failed to examine the same in the context of provisions of sec. 56(2)(viib) of the Act. In the case of Malabar Industrial Company (243 ITR 83) the Hon’ble Supreme Court has held that the CIT cannot revise the order, if the AO has taken a plausible view of the matter. However we notice that the AO has not examined the issue in the context of provisions of sec. 56(2)(viib) of the Act and hence, in our view, it cannot be said that the AO has taken a plausible view of the matter. Hence we are of the view that the Ld CIT was justified in invoking revision proceedings on this issue.
The next issue relates to the application of provision of Explanation to sec. 73 to the loss arising on derivative transactions. We heard the parties on this issue. The Ld A.R submitted that the provisions of Explanation to sec. 73 shall apply only when there is purchase and sale of shares, while in the instant case the assessee has incurred loss on derivative transactions. He further submitted that the derivative transactions in shares have been excluded from the definition of “Speculative transactions” by the proviso to sec. 43(5) of the Act. Accordingly it was contended that the Ld Pr. CIT has 4 M/s. Tutor Investment & Finance Pvt. Limited misdirected himself in applying the provisions of Explanation to sec. 73 of the Act to the loss arising on derivative transactions.
On the contrary, the Ld D.R supported the order passed by Ld Pr. CIT.
We find merit in the contentions of the Ld A.R on this issue. The derivative transactions have been excluded from the definition of “Speculative transactions” by the proviso to sec. 43(5) of the Act. Further the derivative transactions do not involve purchase and sale of shares and hence Explanation to sec.73 of the Act would not apply to the same. Accordingly we are of the view that there is no justification on the part of Ld Pr. CIT in invoking revision powers on this issue. Accordingly we set aside the order of Pr. CIT passed on this issue.
The last issue relates to the disallowance of interest charged on TDS deduction. The Ld A.R fairly admitted that the AO did not ask any question on this issue, in which case, it cannot be said that the AO has applied his mind on this issue. Accordingly we uphold the order passed by Ld Pr. CIT on this issue.
In the result, the appeal filed by the assessee is partly allowed. Order has been pronounced in the Court on 15.6.2018.